(A) for a
group A member, the average annual earnable compensation of a
member during the 60 consecutive monthsfive consecutive fiscal years beginning July 1 and ending June 30of creditable service during which his or her earnable
compensation was the highest, or if he or she has less than 60 months of
creditable service, it shall mean his or her average annual earnable
compensation during his or her total creditable serviceaffording the highest average, or during all of the years of
creditable service if fewer than five years. If the member’s highest five
years of earnable compensation are the five years prior to separation of
service and the member separates prior to the end of a fiscal year, the AFC
shall be determined by adding:

(i) the actual earnable compensation earned through the date of
separation and corresponding service credit;

(ii) the earnable compensation and service credit earned in the
preceding four fiscal years; and

(iii) the remaining service credit that is needed to complete the
five full years, which shall be factored from the fiscal year preceding the
four fiscal years described in subdivision (ii) of this subdivision (A). The earnable
compensation associated with this remaining service credit shall be calculated
by multiplying the annual earnable compensation reported by the remaining
service credit that is needed.

(B) For a
group B or C member, the term means the average annual earnable compensation of a
member during the 36 consecutive monthsthree consecutive fiscal years beginning July 1 and ending June 30of creditable serviceduring which his or her
earnable compensation was the highest, or if he or she has less than 36
months of creditable service, it shall mean his or her average annual earnable
compensation during his or her total creditable serviceaffording the highest average, or during all of the years in his
or her creditable service if fewer than three years. If the member’s highest
three years of earnable compensation are the three years prior to separation of
service and the member separates prior to the end of a fiscal year, the AFC
shall be determined by adding:

(i) the actual earnable compensation earned through the date of
separation and corresponding service credit;

(ii) the earnable compensation and service credit earned in the
preceding two fiscal years; and

(iii) the remaining service credit that is needed to complete the
three full years, which shall be factored from the fiscal year preceding the
two fiscal years described in subdivision (ii) of this subdivision (B). The earnable
compensation associated with this remaining service credit shall be calculated
by multiplying the annual earnable compensation reported by the remaining
service credit that is needed.

(C) For a group D member,
the term means the average annual earnable compensation of a member during the 24
consecutive monthstwo consecutive fiscal
years beginning July 1 and ending June 30of
creditable service during which his or her earnable compensation was the
highest, or if he or she has less than 24 months of creditable service, it
shall mean his or her average annual earnable compensation during his or her
total creditable serviceaffording the highest
such average, or during all of the years in his or her creditable service if
fewer than two years. If the member’s highest two years of earnable compensation
are the two years prior to separation of service and the member separates prior
to the end of a fiscal year, the AFC shall be determined by adding:

(i) the
actual earnable compensation earned through the date of separation and
corresponding service credit;

(ii) the
earnable compensation and service credit earned in the preceding fiscal year;
and

(iii) the
remaining service credit that is needed to complete the two full years, which
shall be factored from the fiscal year preceding the fiscal year described in subdivision
(ii) of this subdivision (C). The earnable compensation associated with this
remaining service credit shall be calculated by multiplying the annual earnable
compensation reported by the remaining service credit that is needed.

* * *

(10) “Employee” means the
following persons employed on a regular basis by a school district for not less
than 1,040 hours in a year and for not less than 30 hours a week for the school
year, as defined in section 1071 of Title 16, or for not less than 1,040
hours in a year and for not less than 24 hours a week year-round. The term
shall also mean persons employed on a regular basis by a municipality other
than a school district for not less than 1,040 hours in a year and for not less
than 24 hours per week, including persons employed in a library or museum
at least half of whose operating expenses are met by municipal funds:

* * *

(11) “Employer” means a
municipality or a library or a museum supported in whole or in part byat
least half of whose operating expenses are paid from municipal funds.

* * *

Sec. 2. 24 V.S.A. § 5054a(c) is added to read:

(c)
Any time a member is required to make a single contribution in connection with
an election under this section, a member may contribute in equal annual
installments for a period not to exceed three years. Those contributions shall
become a part of the member’s accumulated contributions. Any member who
retires before completing payment for the purchase of service under this
section shall receive pro rata credit for service purchased before the date of
retirement, but if the member so elects at the time of retirement, the member
may pay as much in a single sum as is necessary to provide full credit at that
time.

Sec. 3. 24 V.S.A. § 5055(g) is added to read:

(g)
A retirement allowance shall be calculated and paid on the basis of the
compensation actually reported for which contributions were made by the
employing municipality. A member employed by a municipality that paid
contributions based on less than the full earnable compensation shall have his
or her average final compensation calculated based upon the consecutive months
of creditable service appropriate for his or her group plan during which his or
her compensation reported was the highest prior to July 1, 2006 for all service
accrued through June 30, 2006, and shall have his or her average final
compensation calculated based upon the consecutive months of creditable service
appropriate for his or her group plan during which his or her full earnable
compensation was the highest for all service accrued after July 1, 2006.

Sec. 4. 24 V.S.A.
§ 5056(a) is amended to read:

(a)
Upon application of a member not more than 90 days before, or later
than ninety90 days, or longer for cause shown, after the
date a member may have separatedseparates from service, any
member who has not reached his or her normal retirement date and has had
five or more years of creditable service, including two and one-half years
as a contributor subsequent to joining, may be retired by the retirement
board on a disability retirement allowance, not less than thirty nor more
than ninety days after filing the applicationon the first of the month
following separation from service; provided that the medical board, after a
medicalan examination of suchthe medical records of the
member or a medical examination by a physician or physicians designated by
the medical board, shall certify that the member is mentally or physically
incapacitated for the further performance of dutythe member’s
specific job requirements, that such incapacity has existed at/andat
and since the time of the member’s separation from service and is likely to
be permanent, and that he or she should be retired. If the member has
applied for and been granted a disability retirement allowance from the Social Security
Administration prior to submission of municipal application, an automatic
approval will be granted upon receipt of proof of Social Security disability
allowance.

Sec. 5. 24 V.S.A.
§ 5056a is amended to read:

§ 5056a. BENEFIT DENIAL;
EVIDENTIARY HEARING

(a) An
applicant for disability retirement benefits under section 5056 of this title
may file a request for an evidentiary hearing with the retirement board if the
application for benefits is denied.

(b) The
hearing shall be an appeal de novo and shall be conducted by a hearing
officer designated by the board and in conformance with rules adopted by the
board. Rules adopted by the board shall be consistent with section 809 of
Title 3.

(c) The
decision of the hearing officer shall constitute final administrative action.

(d)
The retirement system or the applicant may appeal a decision of the hearing officer
to the supreme court pursuant to Rule 13 of the Vermont Rules of
Appellate Procedure.

Sec. 6. 24 V.S.A.
§ 5057 is amended to read:

§ 5057. RE-EXAMINATIONREEXAMINATION
OF DISABILITY

BENEFICIARY

(a)
Once each year during the first five years following the retirement of a
member on a disability retirement allowance, and once in every three year
period thereafter, the retirement board or the medical board may,
and upon his application shall, require any disability beneficiary who has
not reached his or her normal retirement date to undergo a medical
examination, by the medical board or by a physician or physicians
designated by the medical board, suchthe examination to be made
at the place of residence of suchthe beneficiary or other place
mutually agreed upon. In lieu of a medical examination, the retirement
board may request current medical records or evidence to substantiate the
continued disability status.

(b)
Should any disability beneficiary who has not reached his normal retirement
date refuse to submit to such medical examination or refuse to supply
current medical records or other requested medical evidence, his or her
allowance may be discontinued until his withdrawal of such refusal, and
should his refusal continue for one year, all histhe
beneficiary’s rights in and to his or her pension may be revoked by
the retirement board.

Sec. 7. 24 V.S.A.
§ 5059(b) is amended to read:

(b) Unless the
designated dependent beneficiary elects to receive payment of a deceased
member’s accumulated contributions as provided under subsection (a) of this
section, the retirement allowance payable to the dependent beneficiary of a
deceased group A, group B or, group C, or group D member
under this section shall be equal to the retirement allowance that would have
been payable had the member elected option 1 under section 5060 of this title
and retired on the member’s date of death. In the case of a member who has not
attained the normal retirement date as of his or her date of death, the
retirement allowance shall be computed on the basis of a disability retirement
allowance or an early retirement allowance, whichever provides the greater
benefit to the dependent beneficiary. If the deceased member has no eligible designated
dependent beneficiary, the member’s accumulated contributions shall be payable in
accordance with the provisions of subsection (a) of this section. If his or
her dependent beneficiary so elects or if the member served less than five
years, or less than two and one-half as a contributing member, the return of
his or her accumulated contributions shall be made in lieu thereofto
the member’s designated beneficiaries. In the absence of a designated
beneficiary, the return of his or her accumulated contributions shall be
payable to the deceased member’s estate.

Sec. 8. 24 V.S.A.
§ 5064(c)(1) is amended to read:

(1) On
account of each member, an employer shall report earnable compensation and
pay annually, in installments as determined by the board, into the pension
accumulation fund an amount equal to the certain percentage of the annual
earnable compensation of such member. Such contribution percentage shall be
separately determined for each group of membership within the retirement system
as the sum of “normal contribution rate” for such membership group and its “accrued
liability contribution rate,” such sum to be reduced by the member contribution
rate provided for in subsection (b) of this section.

Sec. 9. 24 V.S.A.
§ 5067(a) is amended to read:

(a) For
members, as of June 30 in each year, commencing June
30, 1987, a determination shall be made of the increase or decrease,
to the nearest one-tenth of a percent of the Consumer Price Index for the
preceding fiscal year. The retirement allowance of each beneficiary in receipt
of an allowance for at least one year on the next following December 31st31 shall be increased or decreased, as the case may be, by an amount
equal to one-half of the percentage increase or decrease. The increase
or decrease shall commence on the January 1st1 immediately
following such December 31st31. The adjustment
shall apply to members of the group A, B, or D plans receiving an early
retirement allowance only in the year following attainment of age 62normal
retirement age, provided the member has received benefits for at least 12
months as of December 31 of the year preceding any January adjustment. The
maximum adjustment of any retirement allowance resulting from any such
determination shall be two percent for group A members and three percent for
group B, C, and D members, and no retirement allowance shall be reduced
below the amount payable to the beneficiary without regard to the provisions of
this section.

Sec. 10. 24
V.S.A. § 5068(c) is amended to read:

(c) On
or before September 30 of any year, a municipality, at an annual or special
meeting warned for the purpose,the legislative body of a municipality
may designate groups of employees eligible to become members of group D. SuchThe designation may apply to one or more of the following groups of
employees:

* * *

Sec. 11. 24
V.S.A. § 5069 is amended to read:

§ 5069. INSURANCE

(a) The
board may enter into insurance arrangements to provide health and medical
benefits for retired members and their dependents.

(b)
The board may, to the extent that it may be funded as described in this
subsection, establish an uninsured program for the reimbursement of certain
health care costs of retired members and their dependents pursuant to the
following:

(1)
Benefits under an uninsured program shall be funded by redirecting a portion of
contributions from employers. Employer contributions shall only be so
redirected to the extent that those contributions offset an existing
actuarially determined surplus with respect to the actuarial cost method and
funding adopted by the board. The board may establish a trust to hold and
invest employer contributions and to pay the benefits and administrative
expenses of the program. The benefits or administrative expenses of this
program shall not be paid from the annuity fund, the pension fund, or the
expense fund.

(2)
The board shall have the discretion to determine the method for allocating the
fund balance to retired members; provided, however, that the aggregate benefits
payable under this program may not exceed the aggregate contributions made by
employers and earnings, if any, on those contributions. Prior to July 1 of
each year, the board shall notify each retired member of the amount available
for reimbursement over the succeeding 12 months and the procedures by which the
retired member or dependent may request reimbursement.

(3)
Retired members and their dependents shall be required to provide
substantiation of their health care expense claims to the extent required by
the Internal Revenue Service for tax-favored treatment of their
reimbursements. The board may enter into an agreement with a third party
administrator to process the expense claims of retired members and their
dependents.

(c) As an
alternative to providing health care insurance, the board, in its discretion,
may assist retired members of the system with the cost of health care by
authorizing payment of a health care stipend to retired members in an amount to
be determined by the board. In the event the board determines to provide such a
stipend, it shall annually review the stipend, in consultation with the actuary
designated pursuant to subsection 5052(j) of this title, and determine whether
to continue to provide the stipend and the amount to be paid. If authorized by
the board, a stipend shall be paid in 12 monthly installments commencing on
July 1 of that year.

Sec. 12. VERMONT MUNICIPAL EMPLOYEES’ RETIREMENT

SYSTEM; ONE-TIME OPTION

(a) All municipal employers
participating in the Vermont municipal employees’ retirement system shall on or
before September 30, 2006, file a report attested to by the payroll officer
with the Vermont municipal employees’ retirement board describing what has been
included as earnable compensation in their reports to the system prior to that
date. Beginning July 1, 2006, all municipalities shall
report total earnable compensation in accordance with 24 V.S.A. § 5051(9).

(b) Any member of the Vermont municipal
employees’ retirement system employed by a municipality that was reporting less
than total earnable compensation as required after July 1, 2006 shall have a
one-time option to increase his or her earnable income for the time period
prior to July 1, 2006 to that which it would have been if the requirement had
been in effect during that period of the member’s employment with the
municipality. Any member electing this option shall deposit in the annuity
savings fund by a single contribution or by five equal annual installments the
amount or amounts determined by the system’s actuary to be cost-neutral to the
system, and his or her municipal employer shall also deposit in the pension
accumulation fund by a single contribution or by five equal annual installments
the amount or amounts determined by the system’s actuary to be cost-neutral to
the system. The one-time option expires on June 30, 2007. All employee
contributions due under this subsection shall be deposited prior to
commencement of retirement benefits.